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Week In Review – February 23, 2018

Volume 24, Number 7

Reginald J. Smith, Community Development Manager – Bank of Kansas City

Economic Highlights for the Week Ending February 23, 2018

MONDAY, February 19th

PRESIDENTS DAY
All Markets Closed

TUESDAY, February 20th

U.S. stocks retreated after advancing six consecutive days. The Dow lost 1.0%, the S&P declined 0.6% and the Nasdaq slipped 0.1%. The US dollar rallied and advanced against all of its major counterparts – the euro, pound sterling, Swiss franc, yen and the Canadian and Australian dollars. No economic data were released. Rather investors focused on the upcoming publication of the FOMC minutes Wednesday afternoon.

WEDNESDAY, February 21st

The MBA mortgage applications index fell 6.6% for the week ending February 16. The purchase index dropped 6.2% on the week as the refinance index tumbled 7.1%. Higher interest rates are no doubt impacting mortgage application activity as contract mortgage interest rates moved higher once again last week. The average interest rate on 30-year fixed rate conforming mortgages ($453,100 or less) increased by 7 bps to 4.64%, the highest rate since January 2014.

Existing home sales fell again in January, declining by 3.2% to annual pace of 5.380 million following a drop of 2.8% in December to an annual pace of 5.560 million. The decline last month wiped out the gains over the past year, with existing home sales down 4.8% in January from January 2017. Regionally, sales fell in all areas of the country with modest declines in the Northwest and South and moderate declines in the Midwest and West. The inventory of homes available for sale increased 4.1% on the month to 1.520 million which represents just a 3.4-month supply at the current sales pace. However, inventories remained down a sharp 9.5% on the year. Clearly, such low supply on the market is constraining sales and lifting prices. House prices continued to move higher over the past year as the median price for an existing home gained 5.8% to $240,500 in January from January 2017. NAR chief economist, Lawrence Yun noted another month of solid price gains underlines this ongoing trend of strong demand and weak supply. Yun went on to say ”However, theres hope that the tide is finally turning.” There was a nice jump in new home construction in January and homebuilder confidence is high. These two factors will hopefully lay the foundation for the building industry to meaningfully ramp up production as this year progresses.

There were no surprises in the January 31 FOMC meeting minutes. This was the last meeting chaired by Janet Yellen before Jerome Powell took over a few days later as Chairman. The notes showed that Committee members were more positive about the economic outlook given accommodative financial conditions, solid growth abroad, and recent tax changes and believed that even with gradual adjustments to monetary policy, economic activity would expand at a moderate pace and labor market conditions would remain strong. The FOMC now expects 2018 economic growth to exceed their December forecasts. Currently, fed funds futures traders are pricing in an 83% chance of a 25-bps hike at the next FOMC meeting March 21.

THURSDAY, February 22nd

Jobless claims fell 7k to 222k for the week ending February 17. Initial claims continue to fall and remain near historical lows indicating fewer people are filing for unemployment insurance. The four-week moving average of new claims, which smoothes out weekly volatility slid 2250 to 226k just shy of a 45-year low seen just two weeks ago. These data continue to show the labor markets remarkable long-term strength, boding well for another strong employment report on March 9.

Expectations for the U.S. economy are only getting better. The Conference Boards index of leading economic indicators rose 1.0% in January after a gain of 0.6% in December. Most of the index components made a positive contribution last month led by building permits, stock prices and new manufacturing orders. Steady contributions continue to come from average initial claims, consumer expectations, the interest rate spread and the report’s credit index.

FRIDAY, February 23rd

Stock Market Close for the Week

Stock Market Close for the Week

Index

Latest

A Week Ago

Change

DJIA

25,309.99

25,219.38

+90.61 or +0.36%

NASDAQ

7,337.39

7,239.47

+97.92 or +1.35%

WEEK IN ADVANCE

After a week of mostly housing market related data, reports in the coming week wrap up the sector for the month. Watch for new home sales and pending home sales, both on next week’s calendar.

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